Business Secretary Sajid Javid is seeking the views of businesses
and entrepreneurs on whether clauses that prevent an individual from
competing against their former employer are stifling opportunities to
innovate and grow.

The call for evidence, due to be launched shortly, will look for
views on whether this type of restrictive practice is acting as a
barrier to innovation and employment and preventing start-ups from
prospering.

I have written about restrictive covenants (or post-termination
restrictions as they are also known) in this column before.

In that column I said employers needed to identify what level of
protection they considered necessary to protect their business interests
and draft their contracts carefully to ensure their restrictions were
enforceable.

I suggested to employees that they read their contracts before
signing a contract of employment and to bear the restrictions in mind
when considering a move.

But what does the business world think of a world where restrictive
covenants are banned? Over the past few weeks, in a random and not at
all scientific survey, I've been asking that question of clients
and contacts and, in particular, whether they think restrictive
covenants stifle innovation and entrepreneurship.

The responses have been fairly consistent. They boil down to this -
I didn't think they were fair when I was an employee, but now that
I'm an employer I think they are necessary to protect my business.
I'm the one taking the financial risks of starting up or building a
business and I would not be so willing to take that risk if my employees
could leave and immediately set up a competing business and take my
staff and my customers with them.

And I would not share with my employees my business knowledge and
contacts so readily if I thought that once they'd learned
everything they needed from me, they could swan out the door with it all
at the drop of a hat.

So restrictive covenants encouraged these business owners into
entrepreneurship.

However, more than one of those business people went on to add that
restrictive covenants were needed because they made people unwilling to
leave and set up business on their own.

The enforced period of non-competition or of not being able to do
work for their former employer's customers and the resulting loss
of income for a period stopped employees from leaving at all.

These comments support Mr Javid's view that restrictive
covenants act as a barrier to entrepreneurship. Some employees are put
off from ever taking the leap to set up on their own because of their
post termination restrictions.

The interests of employers and employees often compete and the
question is how to balance those competing interests. My view is that
the present law on restrictive covenants does a fairly good job at
achieving that balance for the following reasons: | Employers who have
overlong or one-size-fits-all restrictions will be advised that those
restrictions are probably unenforceable; | Employees who don't make
the leap into entrepreneurship because they can't poach their
former employer's customers and staff for a while probably
don't have the stomach for the other challenges and uncertainties
of start-up life anyway; | Employees who really want to become
entrepreneurs will take advice. If they are advised the covenants are
unenforceable they may argue the toss with their employers and see who
blinks first. If they are advised the covenants are enforceable, they
will just wait until their restrictions have expired before launching.

The real trick for all businesses is to make sure their customers
and their employees feel valued and cared for such that they can't
be enticed away to the competition anyway.

Bethan Darwin is a partner with law firm Thompson Darwin

CAPTION(S):

<BBusiness Secretary Sajid Javid is considering changes to the
restrictions on employees who start up a business in competition with a
former employer Carl Court

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